When you take loan from Bank or a Private Lender, then you are obliged to produce some assets as surety for the money that you have borrowed. In case if you are unable to repay the loan then the lender has the right to seize the asset that you pledged over the loan. This asset or property that you pledge in return for a borrowed loan is termed as Collateral.
Different types of assets can be used as collaterals. Physical assets like car, land, home, etc can be used as collaterals. Also some intangible assets might be accepted depending on your borrower. For this you can pledge over a bank account or investment holdings as collateral.
Why opt for Collateral loans?
Collateral increases the security while trading a loan. The lenders often give out better interest rates than unsecured loans; it is because the lender has a backup on your assets and also prone to less risk.
The employment status and the annual income rates are not a basic requirement when it comes to Collateral loans. The lenders are focused on getting their money back within the fixed time and they always have an asset for backup. Also based on the value of the collateral the loan value can be negotiated with the lenders.
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What is the difference between a collateral loan and a secured loan? Could someone please explain this to me.
My understanding is that a secured loan is money given to you against your assets. I would consider those assets collateral against your loan… so is the main difference between the type of collateral offered or the tenure of the loan?
Before I read this article, the term Collateral was unknown to me. But, the beginning lines of the article made the term crystal clear for me. The articles explains the valid assets which can be used as collateral. Collateral are an important factor while taking loans and this article focuses on the importance of an asset for taking up the load.
“Collateral”, is the term used for the thing we keep as mortgage right, just a technical term.The gold , vehicles, property all these which keep as a mortgage in a bank are technically called Collateral. Does the same term been used when we deal with pawnbrokers, cos they accept all kind of stuff for pledge.
This type of loans was also prevalent in the olden times. Though the term “collateral” is new but it implies the same. This type of loan has benefits to both the lender and the taker. The lender on non payment of loans will get the asset and the taker will always have the incentive to repay back his loan to get back his assets.
Collateral is what the borrower puts up as a safety measure for the bank when borrowing money. It can be land, a house, a car etc. But I was unaware that you can also put up a bank account or investment as collateral. thanks very much for this bit of information. I was unaware of this interesting bit of information. the author has gone the extra mile to make things easily understandable for laymen like me.
Money makes the world go around, the fact that has been determined a long, long time ago. If we look at the loan from another perspective, it´s quite obvious that none of us would lend his or hers money without any collateral as well. The good part of collateral loan is of course some additional benefits that come with it.